OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has placed under review with developing implications the Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Rating of “a-” of Medco Containment Life Insurance Company (Mechanicsburg, PA) and Medco Containment Insurance Company of New York (Troy, NY) (collectively referred to as Medco Containment Group). Both companies are subsidiaries of Express Scripts Holding Company (Express Scripts) [NASDAQ: ESRX].
The rating actions follow the recent announcement that Cigna Corporation (Cigna) has signed a definitive agreement to acquire Express Scripts for $67 billion in a combination of cash and stock. The transaction is subject to approval by federal and state regulators and expected to close by Dec. 31, 2018.
Following the issuance of $22.5 billion of new debt to finance the transaction, combined with the existing debt at Cigna and Express Scripts, Cigna’s financial leverage is expected to be approximately 49%, with a sizeable increase in its goodwill plus intangibles to equity ratio. The developing implications reflect A.M. Best’s concerns that the strategic importance of Medco Containment Group to the overall organization might change following the completion of the transaction.
In addition, the increased debt and limited financial flexibility at the new combined organization might create the potential for increased dividends from the insurance operations. Furthermore, the transaction is the largest Cigna has undertaken and presents significant execution risks.
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